Investing in Tracking Stocks
A tracking stock (or letter stock, targeted stock) is a type of issue based on the operations of a wholly-owned subsidiary of a diversified company. Investors receive dividends tied to the performance of the tracked business. They can be purchased and sold as common stock. This article will explore the key features of tracking stocks. Here are some key points to consider. In addition, this article will explain why tracking stocks are useful for investors.
Investors have limited or no voting rights
A tracking stock is a type of share that has a financial interest in the performance of a business unit. A tracking stock’s dividend is linked to the performance of the business unit, which may be lower than the company’s overall performance. This means that a tracking stock may not have any voting rights. There are some advantages to tracking stock investing, but there are also some disadvantages.
Because tracking stock investors generally have limited or no voting rights, they do not have much say in the company’s operations. Additionally, they may not have a specific operating segment to invest in, so they will likely not experience the same benefits as a traditional stock. In the event of a corporate failure, the assets owned by tracking stock holders would be fair game for creditors. While tracking stocks typically have limited or no voting rights, they may provide a valuable source of growth funds.
They can be reabsorbed by the main stock at any time
WorldCom announced in November that it is issuing a tracking stock for its long-distance phone service. The new stock will help the company separate its healthy business units from its struggling ones. WorldCom has been battered by price wars for long distance phone service, new technology and wireless phones, and new competition from online and mobile phone service. As of last month, WorldCom reported fourth-quarter earnings of $726 million, or 25 cents a share.
They can be traded like common stock
A tracking stock can be traded like any other type of common stock, but it has unique characteristics. Because it is a part of a larger company, it can appreciate and fall in value even if the parent company is doing poorly. Some companies issue tracking stocks to separate different segments of their businesses. For example, a large manufacturing company might have a small software development division, and issue tracking stock for its shareholders to invest in that division. The parent company still controls the division, but can sell it to investors to reap its benefits.
Tracking stock is a common type of stock that a parent company issues. It is a proxy that allows investors to follow a specific division’s performance. It is a useful tool for companies that have a number of different divisions. If one division performs better than another, a tracking stock can increase in value. The same applies for a tracking stock that is a part of a larger company.